Standing Committee A

[Mr. Edward O'Hara in the Chair]

Finance Bill

(Except clauses 1 to 3 and 16 to 53and schedules 4 to 11)

Edward O'Hara: I welcome the Committee back. Before we commence, I shall make a statement about amendment No. 14 to schedule 13. The Government amendment to amendment No. 14 was tabled yesterday, so it is starred. On behalf of all the Chairmen, Dr. Clark made the usual pronouncement about starred amendments at the beginning of the Committee's proceedings, but there are exceptional circumstances in this case.
 The background is that the Government have realised that the amendment tabled by the Opposition makes a reasonable point. However, the second part of that amendment is technically defective, and the amendment to the amendment would correct the defect. On behalf of my co-Chairmen, I assume that the Opposition would like to see their amendment made, even if it has to be modified. Although I am not in general minded to depart from the normal rules about starred amendments, in these particular circumstances, I am minded to call the amendment to the amendment, and will institute the appropriate procedure when we come to it. I am making this statement now, because members of the Committee might wish to digest the import of it before we get to that point.

Richard Ottaway: On a point of order, Mr. O'Hara, have you had a request from the Economic Secretary to correct the record from last week? I pointed out that Britain had slipped from 15th to 19th position in the competitiveness league, to which she replied:
 ``That is a ridiculous assertion.'' —[Official Report, Standing Committee A, 26 April 2001; c. 66.] 
I have brought with me the press release from the International Institute for Management Development, which confirms that we have slipped to 19th position in the competitiveness league—just above Estonia, which is in 22nd place. Obviously, the Minister will want to correct the record to reflect that point.

Edward O'Hara: I am not sure whether that is a point of order. It is a matter of comment on the record, and if the Minister present wishes to address it, he may do so when the opportunity arises. I do not propose to delay the proceedings of the Committee on that point. Clause 57 Mileage allowances: exemptions and relief

Clause 57 - Mileage allowances: exemptions and relief

Question proposed, That the clause stand part of the Bill.

James Clappison: We cannot allow the subject of mileage allowances to pass without making a few comments about it. The clause concerns payments made by employers to employees for business travel undertaken by employees in their own cars. Members of the Committee are familiar with various issues involving vehicle taxation and company car taxation. We must have it firmly in mind that those business journeys are made by employees, in their own cars, on behalf of the employer, and the employer remunerates the employee.
 The matter was dealt with by the fixed profit car scheme, which was introduced in 1990 and gave a tax-free mileage based on engine size and the number of business miles travelled. The general principle is that remuneration made available by the employer to the employee for the employee's use of his or her own car is a benefit in kind and subject to taxation. The fixed profit car scheme, however, gave an exemption from taxation. 
 Clause 57 and succeeding clauses introduce a new statutory tax exemption for mileage allowance payments up to an approved rate paid by employers to employees for business. In contrast to the four rates under the former system, two rates are payable. For the first 10,000 miles of business travel, 40p a mile is payable. Each additional mile is assessed at 25p. 
 The Committee should also bear in mind the fact that the new exemption for a mileage allowance also exempts payments to employees for carrying other employees, whom the Bill describes as ``qualifying passengers''. Employees who carry fellow employees in the course of business travel in their own cars are given a qualifying passenger allowance for the grand sum of 5p a mile. The Government's intention is stated in the explanatory notes to the Bill. 
 What representations have the Government received about clause 57 and national insurance? That issue is of interest in some business quarters. There is particular interest in the administrative issues that arise when an employee is paid more than the allowed rate. There is a difference between income tax and national insurance contributions for these purposes. Given that income tax applies for a year at a time, it is administratively possible to look back over a year and mark the point at which 10,000 miles—the significance of which I have discussed—was exceeded and the lower rate began to apply. 
 National insurance, however, applies month by month during the year, which means that continuous monitoring of mileage is needed to see which limit applies. Under the arrangements for the fixed profit car scheme, the Revenue dealt with that by charging national insurance only on mileage payments that exceeded the higher rate. I am sure that those who are interested in the subject would like to hear a few words about the Government's thinking on national insurance and the new scheme. 
 More generally, it is worth bearing in mind the fact that the changes involve a considerable number of employees. Some 3 million people use their own vehicles for business travel on their employers' behalf, of whom 2.3 million receive some payment from their employers for that business mileage. Interestingly, the vast majority of those employees—almost 80 per cent.—drive less than 4,000 miles a year in the course of business travel, and only 5 per cent. drive more than 12,000 miles. 
 Employees with smaller vehicles receive a higher rate of mileage allowance under the new arrangements than under the fixed profit car scheme. Indeed, that has been the case since the beginning of this financial year. However, employees with vehicles in the two upper bands of the fixed profit scheme will see a reduction in their mileage allowance from April 2002. Drivers of vehicles above 2000 cc will lose 23p a mile over the first 4,000 miles. 
 Drivers of 1500 cc cars are entitled to feel a little perplexed about the provisions and where they fit into the Government's general view on the environment. Committee members will recall our debate about vehicle excise duty. Under clause 8, 1500 cc cars will become environmentally friendly, in the Government's view, because they are given a reduced rate of VED. 
 Members of the Committee will recall our debate about the difference between 1500 cc vehicles and 1549 cc vehicles, and what was magic about 1549 cc. We can take it as a Government statement that, under clause 8, 1500 cc vehicles are environmentally friendly. However, by clause 57 they have become environmentally unfriendly, because their tax-free mileage allowance is being cut for the first 4,000 miles. I am sure that drivers of those vehicles would be interested to hear from the Minister how they fit into the scheme of things. In any event, taking those provisions in the round, according to the Government's environmental impact assessment, the net effect on CO2 emissions is likely to be modest. 
 One other point worth bearing in mind is that in future not all employers will have the opportunity to disregard the authorised mileage allowance and have such emoluments and expenses dealt with in the same way as other emoluments and expenses. It should also be remembered that the fixed profit car scheme was voluntary. It was up to employees whether they took advantage of the provisions. This is a statutory provision, and under later clauses drivers will lose the opportunity to take advantage of capital allowance provisions, as well as the chance to make a claim for relief based on receipted bills or interest on loans related to car purchase.

Graham Allen: What do the Liberals think about it?

James Clappison: Apparently they are not very interested in this subject. The 3 million drivers affected are of no concern to them.
 What does the Minister think will be the effect of the loss of capital allowances and relief for interest on loans, and how much will be lost by drivers as a result? How much benefit has the provision been to drivers in the past? It will be a significant deprivation for drivers not to have the opportunity to claim for capital allowances and seek relief for interest paid on the cost of the car.

Stephen Timms: I begin by bidding you a warm welcome to the Chair, Mr. O'Hara. We are delighted that you are responsible for overseeing our deliberations.
 Clause 57 and schedule 12 introduce further measures to discourage the driving of excess business miles and encourage the use of smaller and more fuel-efficient cars. Last year we introduced, and had much debate about, a new system of company car taxation to provide an incentive for company car drivers and their employers to choose more fuel-efficient cars. Members who were present for that debate will recall that we believe that significant environmental benefits, of the order of 1million tonnes of CO2 emissions a year by 2010, will result from the new system of company car taxation. Today we are explaining the equivalent incentive that we are introducing for employees who use their own cars for business journeys. 
 The hon. Member for Hertsmere (Mr. Clappison) said that the Government believed that the environmental impact of these measures would be modest. That is right, but the important point to which I draw the Committee's attention is that they are designed to ensure comparability with the changes that we made to company car taxation last year. We do not want to change significantly the incentives or disincentives affecting whether employees drive their own cars or company cars. We want to leave that choice more or less where it was, and, having made the changes last year to company car taxation, we now need to make changes to the arrangements for people who drive their own cars during their employment. 
 These changes are therefore an integral part of our overall strategy to improve the protection of the environment by reducing greenhouse gas emissions and improving local air quality. From April 2002, there will be a single approved rate per mile that employers can pay to employees who use their own cars for business, without creating a liability for tax or national insurance contributions. It is called the approved mileage allowance payment rate. As long as employers pay no more than the approved rate, they will not have to report to the Revenue. The new system will be significantly easier for employers to administer, because the same rate will apply to all cars, and significantly reduce the reporting requirements and the complexity of the system that employers have to manage. Employers will continue to pay the business mileage rate that they wish, but any amount above the approved rate will have to be reported and will be liable to both tax and national insurance. 
 The hon. Gentleman asked how such payments would be handled for national insurance purposes, given the difference between income tax and national insurance. We intend to align the amounts liable to tax and national insurance as far as proves practicable. Officials will consult employers' representatives soon to achieve the least regulatory method of implementing the change, which will be made via regulations later this year. The draft regulations will also be subject to consultation, which should reassure the hon. Gentleman that we recognise that important decisions must be made. We have not finalised the details yet, but we will do so once we have consulted those who will be affected. 
 Where the employer pays less than the approved rate, employees will be able to claim tax relief up to the approved mileage allowance payments, but they will not be able to make additional claims based on actual expenditure, or for capital allowances or interest on loans relating to car purchase. That will be a significant change in the way in which mileage payments are dealt with in the tax system; we will have a statutory arrangement based on the sums in schedule 12, instead of the several different arrangements that used to be available. As the hon. Gentleman said, the approved rate will be 40p for the first 10,000 business miles driven in a tax year, which is more than twice the 4,000 miles to which the current higher authorised mileage rate applies. As he rightly mentioned, many people who drive their own cars for business drive less than 4,000 miles per year.

James Clappison: Before the Minister moves away from the point about different systems, and the capital allowances and reliefs that were available, I note that he has taken on board the fact that employees could decide whether they wanted to be dealt with under that system or to take advantage of other provisions. Can he tell us how many employees sought to claim capital allowances on their vehicles or relief for interest on loans? If he cannot, I would be grateful if he would write to me, but it would be interesting for the debate if he had the figures at his fingertips.

Stephen Timms: Unfortunately, I do not have the figures. I have asked the same question, and I believe that the information is not available because what the claimed capital allowances apply to is not always clear from self-assessment forms. If on further inquiry the information turns out to be available, I will ensure that the hon. Gentleman is provided with it.
 The change will be a significant benefit to those driving between 4,000 and 10,000 business miles a year in small and economical cars, and to the many employees who drive up to 10,000 business miles in medium-sized cars. For any further business miles, the approved rate will be 25p per mile. 
 The hon. Member for Hertsmere rightly drew attention to the fact that as a further encouragement, to make business travel greener still, from next April employers will be able to choose to pay employees up to 5p a mile free of tax and national insurance for every fellow employee whom they carry on a business journey. Originally, in the pre-Budget report in November, we proposed a sum of 2p per mile. As a result of discussions with both business organisations and organisations such as Transport 2000, we decided that it would be better to increase that sum to 5p a mile, to provide a slightly greater incentive to employees to take fellow employees with them, and so drive in an environmentally friendly manner. We want people travelling on business to share their vehicles whenever they can, so as to reduce further the amount of unnecessary business miles travelled. I am a little disappointed that the Opposition amendments on the subject were not moved, so we have not been able to debate them. I think that those amendments reflected their welcome for the payments, which represent an important change for the better. 
 There will also be a tax-free accrued rate for business travel using motor cycles and bicycles. The rate for bicycles will be increased to a generous 20p a mile, to encourage their use whenever feasible. We are committed to protecting the environment for everybody. About 225 billion miles are travelled by car in the United Kingdom each year, and about one sixth of that distance is business travel, so it provides a significant proportion of the total mileage driven. Making those miles greener will substantially benefit the environment. We started the process with our reform of company cars. The measures in the clause, and those to follow, complete the picture. I commend the change to the Committee. 
 The hon. Member for Hertsmere is right: the change will increase the incentives for people who use their own cars for business purposes to drive more environmentally friendly vehicles. He made a point about the treatment of 1500 cc cars, although strictly speaking, the point applies to cars with engines of 1501 cc to 1549 cc—in other words, the extra ones that we added in on Thursday. It is a fair point, but it applies only to a small number of cars at the margin. However, our aim is not to castigate anybody driving any particular kind of car, or to suggest that they should not do so. We are simply ensuring that the tax system provides incentives for people to manage their affairs in an environmentally friendly way. I hope I have demonstrated that the Bill's provisions will have that effect. 
 I point out to the hon. Gentleman that, according to the AA, the total running cost for petrol cars with engine sizes between 1401 cc and 2000 cc is 18.42p per mile. That is not the total cost—it does not include the cost of owning the vehicle—but the total running cost, which is significantly less than the sum in the schedule. So I hope that the hon. Gentleman will feel that what is proposed in the clause is by no means unfair to people driving such cars.

James Clappison: I shall make two points to qualify what the Financial Secretary said. However, first of all, may I remedy my omission earlier in failing to welcome you to the Chair, Mr. O'Hara? I have quite rightly been pulled up on that by the Government Whip, in his usual charming way, and I hope that I can remedy the defect by giving you a warm welcome to the Chair now.
 Two matters arise from the Minister's remarks: first, he described the incentive that the proposal creates for employees to downsize their vehicles. That should be put within the context of the Government's analysis in the environmental regulatory impact assessment, which, having taken into account the effects of the proposal and other changes, concludes: 
 ``There is therefore a limited incentive to downsize''. 
Secondly, the Minister mentioned the number of 1600 cc cars in use. On the basis of Library statistics, it appears that, considering the distribution of private cars used for business by annual business mileage, the vehicles that do the most mileage are those between 1500 cc and 2000 cc. Many vehicles within that category are between 1500 cc and 1549 cc, so the Government's environmental analysis, despite the Minister's cogent explanation, is a mystery.

Stephen Timms: The hon. Gentleman is right that the bulk of the vehicles that we are discussing are between 1501 cc and 2000 cc. I do not agree with him that the Government are giving a conflicting signal in that respect, but even if we were, only cars between 1501 cc and 1549 cc, a small proportion of the total, would be affected.
 Question put and agreed to. 
 Clause 57 ordered to stand part of the Bill.

Schedule 12 - Mileage allowances

Amendment made: No. 30, in page 142, line 43, leave out from `subsection (1),' to end of line 44 and insert 
`after ``provisions of this Chapter'' insert ``and sections 197AD and 197AE''.'.—[Mr. Timms]

Edward O'Hara: The Question is that the schedule—

Michael Jack: I have a question for the Financial Secretary. I notice that in paragraph 3 of schedule 12 there is a definition of a car—

Edward O'Hara: Order. I thought that the right hon. Gentleman was raising a point of order. The Committee has approved amendment No. 30, and the hon. Gentleman rose as I was proposing that we debate whether the schedule should be the twelfth schedule to the Bill.

Michael Jack: On a point of order, Mr. O'Hara. Could you therefore guide me? The Chairman's selection list shows schedule 12 as a separate item. I therefore assumed that there would be a debate on schedule 12.

Edward O'Hara: I was in the process of proposing the Question on the schedule so that it could be debated.
 Question proposed, That this schedule, as amended, be the Twelfth schedule to the Bill.

Michael Jack: Thank you for your helpful clarification, Mr. O'Hara. Paragraph 3 describes the car as a mechanically propelled vehicle. There are new technologies in the wings—electrically driven vehicles, for example—that may not necessarily be mechanical in the same sense as a petrol engine vehicle. [Interruption.] I am disappointed that there is so much carping comment from the Labour Benches. I should have thought that hon. Members would be interested in ensuring that the proposals covered the new forms of environmentally friendly technology. I merely wanted the Financial Secretary to make a statement on the record that electric, or petrol-electric, vehicles were covered by the measure.
 With reference to the mileage allowances in paragraph 4, the Financial Secretary cited figures from the AA that indicated a running cost of 18p per mile. He did not say what was in the 18p, and therefore whether, in the context of the first 10,000 miles, the remaining 22p was adequate compensation for the depreciation and other costs not included in the 18p. Can he give a source for the Treasury's figure of 22p? People like to know how the numbers are calculated. Finally, can he say why 10,000 miles was selected, rather than any other distance?

Stephen Timms: I can give the right hon. Gentleman the reassurance that he seeks about what is covered by the term ``car''. That certainly would include electric and dual-fuel vehicles, and I agree that it is important that it should.
 With regard to the costs, I quoted from the AA's most recently published assessment of motoring costs. The AA sets out the running costs under the headings of petrol, oil, tyres, servicing, repairs and replacements, which add up to 18.42p per mile for 1400 cc and 2000 cc cars. The total cost per mile, including ownership, for those vehicles, when run for 20,000 miles a year, comes to 40.78p per mile. Many of the AA's figures for motoring costs are for smaller cars, whose costs per mile are less. The costs are greater for larger cars. In setting the various figures used, the Government have paid close attention to the costs incurred by drivers. We also wanted to ensure that the impact on those who lost out because of the changes was kept modest. More people are gaining from the changes than are losing from them, and the overall impact on the Treasury will be negative: it will lose about £45 million a year in tax. I hope that no one will allege that the changes are harsh. In fact, we have been able to develop them in a way that minimises the adverse impact on any individual.

Michael Jack: I thank the Financial Secretary for that information. I note that under paragraphs 4(3) and 5(4) the Treasury may by regulations alter the rates in the schedule. As the Government have substantially increased taxation on hydrocarbon fuels in the past, and there are uncertainties about the cost of those fuels in the future, will the Financial Secretary enlighten us, for the record, about the process that would be employed for a review to determine whether those two provisions were to be exercised?

Stephen Timms: We will keep these matters under review, as we do all parts of the tax system.
 Question put and agreed to. 
 Schedule 12 agreed to.

Clause 58 - Mileage allowances: nil liability notices

Question proposed, That the clause stand part of the Bill.

James Clappison: The clause deals with dispensations granted by Inland Revenue. At present, employers may have dispensations for business travel and expenses. These are rulings by Inland Revenue that certain travel cost reimbursements are not taxable benefits. Employers then know exactly what tax position applies.
 The clause will terminate all dispensations in force with effect from the next tax year, coinciding with the introduction of new mileage allowances. Will the Financial Secretary explain the position regarding reimbursements previously covered by dispensations? Will they become taxable benefits in the next financial year?

Stephen Timms: At present, as the hon. Gentleman said, employers can seek a dispensation or a nil liability notice from their inspector on payments made for expenses such as business mileage in an employee's own car. The employer will no longer have to report every payment. A dispensation will be agreed when the inspector is content that there is no tax liability—usually when the rates paid do not exceed the Revenue's authorised mileage rates.
 With the introduction of the new statutory tax exemption for approved mileage allowance payments—rather than the old administrative practice—the employer can make such payments up to the rates set down in schedule 12 without the need for a dispensation. Dispensations for approved mileage allowance payments will no longer be necessary, which will save both the Revenue's and employers' time. Payments above the approved rate will be taxable because they cannot be dispensed, so we need to remove them from existing dispensations. It will then be unnecessary for every dispensation to be reconsidered individually. 
 On the hon. Gentleman's specific point, I can reassure the Committee that existing dispensations covering other claims for other types of expenses such as subsistence allowances will not be affected by the change. Employers can rest assured that they will continue to enjoy the benefit of existing dispensations. They will not need to approach their inspector in those cases. The clause simply removes from existing dispensations those elements that refer specifically to mileage payments.

James Clappison: It is helpful to know that other forms of dispensation for other types of payment will not be affected. However, that was not quite my point. I asked about dispensation for mileage payments. The Financial Secretary says that dispensations cannot cover payments above the approved rate, but that is the current position. Payments above the approved rate cannot be covered by dispensation in any case. Our concern is that there should be no additional compliance costs for employers who now have to report payments that were previously covered by dispensations. Employers will reflect carefully on the Financial Secretary's words and try to establish for sure that they will not face additional compliance costs as a result of the change.

Stephen Timms: There may be some misunderstanding here. Employers no longer need to report payments made under the statutory arrangements in the clause. There is no longer any need for dispensation because the position is set out clearly in statute. The only possible uncertainty would relate to other elements of the dispensations dealing with subsistence payments, as I said. I hope that I have provided full reassurance to the Committee. In future, the arrangements will be statutory, so there is no longer any need for dispensations.
 Question put and agreed to. 
 Clause 58 ordered to stand part of the Bill.

Clause 59 - Employees' vehicles: withdrawal of capital allowances

Question proposed, That the clause stand part of the Bill.

James Clappison: I shall be brief, because I have already dealt with the principle of capital allowances. The clause withdraws the ability of employees to claim capital allowances for vehicles used in business travel. If the vehicle that was the subject of capital allowances in the past has retained its value over the period of ownership, so that its market value exceeds its written down value at the beginning of the next financial year, when the new provisions come into force, will an income tax charge be levied on the employee as a result of the difference? Accountants often describe it as a balancing adjustment. The Financial Secretary will want to deal with this question because the consequences could be harsh.

Stephen Timms: As one element in ending the current arrangements that allow employees to claim for their actual motoring costs—no longer necessary because of the new statutory provision—the clause terminates the option of claiming capital allowances, by treating the employee as ceasing to own the car immediately before 6 April 2001. The consequence of the rule is that capital allowances for 2001-02 are computed as if the car had been sold at open market value. That could provide a balancing allowance or a balancing charge.
 In practice, it is unlikely that a balancing charge will arise. There has been substantial depreciation in the second-hand car market of late, and the rates of commercial depreciation on cars are similar to, or exceed, the rate at which capital allowances are provided. It is not inconceivable that the problem mentioned by the hon. Gentleman might arise, so to minimise any burden on taxpayers, and to ensure that they do not suffer a tax charge as a consequence of the change to the new system, Inland Revenue officials will accept claims for capital allowances that treat the written down value at the end of 2001-02 as open market value. I hope that I have reassured him and the Committee that no charge will arise in those circumstances.

James Clappison: Those who are more expert than me in these matters will no doubt cast their eyes over what the Financial Secretary said. He has reassured the Committee that in the circumstances described in my opening comments no charges will be applied, so I shall not take the matter any further.
 Question put and agreed to. 
 Clause 59 ordered to stand part of the Bill.

Clause 60 - Exemption for works bus services: extension to minibuses

Question proposed, That the clause stand part of the Bill.

James Clappison: We have made good progress this morning. Clause 60 brings us to a slightly different subject. It deals with the use of buses by employers to transport employees to work, and with whether, as far as the employee is concerned, that use is a taxable benefit.
 Currently, there is a tax exemption for employees travelling from home to work on an employer-provided works bus with a minimum of 12 seats. The clause reduces the minimum from 12 to nine, but we wonder why it has been fixed at that number. The Minister will no doubt say that that will help small employers, but I invite him to consider whether the limit will help all small employers and whether we cannot go further and do so. I am mindful of the fact that there are many people carriers on the road these days. Indeed, Committee members may drive them. I certainly drive one, although I hasten to add that it is not used to transport employees. Will the Minister give a nudge in the direction of employers who want to use people carriers with seating capacity for, say, eight people, to transport employees to work?

Stephen Timms: The Finance Act 1999 introduced measures to encourage employers to develop travel plans that would reduce employees' use of cars to travel to work. One measure was the removal of the tax charge to employees and the national insurance charge to employers where the employer provided a bus service specifically for employees' commuting journeys. Currently, such buses must have a minimum of 12 passenger seats, but the clause extends the tax exemption to employer-provided minibuses with nine, 10 or 11.
 Some Committee members will recall the lively debate about the right number that took place in the 1999 Finance Bill Committee. I think that the initial proposal was that the number should be 17. The Minister who dealt with the matter agreed, I think on Report, that the number should be reduced to 12. I think that, in Committee at that time, the right hon. Member for Fylde (Mr. Jack) proposed reductions to 10 or eight passengers, so I hope that he will particularly welcome the change. We aim to make it easier for employers of smaller work forces to include the provision of a works bus as part of a travel plan. It is already possible for small employers to join together to provide a works bus service, but we recognise that it is not always feasible to do so. 
 Amendment No. 13, which has not been moved, suggests that we consider vehicles with fewer seats. The tax exemption is aimed at removing the tax charge where an employer provides a works bus service. The intention is for many employees to transfer out of their own vehicles and on to a works bus for their commuting journeys.

Michael Jack: The Financial Secretary is talking about the behavioural changes that he hopes that major employers will make to take advantage of the proposal that he has outlined. Will he give one or two examples of what the Government have done to take advantage of it?

Stephen Timms: I am afraid that I cannot give examples, although Departments have certainly drawn up green travel plans in respect of their employees. I cannot give details of their content, but if the right hon. Gentleman tables parliamentary questions on the subject, I am sure that the information will be provided. We have paid a good deal of attention to the issue in respect of our own employees as well as making helpful changes to allow other employers to do the same.
 To ensure the safety of employees travelling in such vehicles, the minibuses should conform to the requirements set out in the Road Vehicles (Construction and Use) Regulations 1986. Those regulations limit the class of minibuses to vehicles that were designed to contain at least nine passenger seats. Therefore, there is logic in taking the number of seats down to nine and no further. It is right that we should take careful account of the safety issues that arise from schemes of this kind. 
 We have carried out research on the subject and plan further research to learn more about employers' use of existing vehicles. We are open to the possibility of making further tax changes in respect of buses, but the change in the Bill will be widely welcomed as an important step in the right direction.

James Clappison: I hope that the research that the Financial Secretary mentioned will examine the interests and needs of small employers, in particular—that group will perhaps be the most interested in changes of this nature, which involve that number of people—their employees, and the type of vehicles that such employers have that might be used to transport employees to work and, thereby, avoid the situation that we all want to avoid, in which too many journeys are made in cars carrying only one person.
 Question put and agreed to. 
 Clause 60 ordered to stand part of the Bill.

Clause 61 - Employee share ownership plans

Question proposed, That the clause stand part of the Bill.

Howard Flight: I, too, welcome you to our deliberations, Mr. O'Hara.
 We welcome clause 61 and schedule 13, which address some of the issues that we raised in Committee on last year's Finance Bill about employee share ownership schemes, in particular the territory of people belonging to a scheme as part of a group and changing employment from one subsidiary to another. However, the issue that we raised last year in respect of non-UK employees was not picked up in schedule 13. The Government's amendment to our amendment No. 14 leads me to believe that they accept our point. 
 As the schedule stands, an employee share ownership plan cannot extend partnership share awards to non-UK employees who do not have a salary as defined for the purposes of the schedule. That issue has cropped up in practice and has led employers to adopt additional plans, with additional costs, if they have significant numbers of non-UK employees. The objective of our amendment is that non-UK employees will be able to contribute out of salary to the same plans to which UK employees contribute, and we suggest that that change should be backdated to last year, as we believe that a drafting error led to the omission.

Stephen Timms: Amendment No. 14 is similar to one moved by the hon. Gentleman in last year's Committee. In that debate, there was a suggestion that Opposition Members might seek to identify some groups of employees who were UK taxpayers, but not included under PAYE, who would benefit from the amendment that they proposed. In fact, there has been no further discussion about that. PAYE operates on the salaries of employees who are UK taxpayers but not on the salaries of those who are not within the scope of UK taxation. The hon. Gentleman made the intention of the amendment clear. We accept that an amendment along those lines could add a useful facility for employers who have employees working overseas, such as those on long-term secondment abroad. There is already provision in the plan to enable those individuals to be awarded free shares.
 The amendment included a commencement date provision with effect from the passing of the Finance Act 2000, which is some time between now and July. That would be unnecessary and somewhat confusing. Partnership shares can be purchased only with deductions from salary, usually monthly or at the end of an accumulation period. The maximum deduction is £125 a month. Employees cannot make up deductions that have been missed so the amendment could only ever have a prospective effect. If the provision were silent as to commencement and so took effect on the passing of the 2001 Act, it would not be clear what that meant in practical terms for employers and employees. 
 I may have confused the Committee slightly. The reference in the amendment is to the passing of the Finance Act 2000, which was in July 2000. If no reference is made to that date, the measure would take effect on the passing of the 2001 Act. If no commencement provision is included, it would not be clear whether any change applied to the salary deduction or the later award of the shares. Other commencement provisions in schedule 13 that have a similar effect are more specific. The amendment provides commencement provisions in the same way. 
 In order to participate in an award, an individual must be eligible at the time of that award. In the case of partnership shares, the individual may participate in an award only if he meets the eligibility criteria at the time that the partnership share money relating to that award is deducted from his salary. If there is an accumulation period of partnership money deduction, the eligibility criteria must be met at the time of the deduction of the first payment relating to the particular award. 
 We have therefore tabled an amendment to amendment No. 14, which appears on the order paper this morning. I am grateful to you, Mr. O'Hara, for your helpful acceptance of this starred amendment. It provides that amendment No. 14 has effect in relation to awards of shares where the deduction of partnership share money, or, if there is an accumulation period, the first deduction of partnership share money relating to the award, is made after the passing of the Act. We are able to take on the helpful point that the Opposition made in a way that does not give rise to the potential difficulties that I described. I hope that we identified a way forward that will please the entire Committee. 
 Question put and agreed to. 
 Clause 61 ordered to stand part of the Bill.

Schedule 13 - Employee share ownership plans: amendments

Amendment proposed, No. 14, in page 146, line 2, at end insert— 
`Meaning of ``salary''
.—(1) In paragraph 48 after ``(PAYE)'' insert ``or which would be if that individual were within the scope of Schedule E'', after ``(expenses and benefits in kind)'' add ``or which would have been had the individual been within the scope of Schedule E''.  (2) This paragraph shall be deemed to have had effect from the passing of the Finance Act 2000.'.—[Mr. Flight.] 
(2) This paragraph shall be deemed to have had effect from the passing of the Finance Act 2000.'.—[Mr. Flight.]
 Amendment made to the proposed amendment: leave out sub-paragraph (2) and insert— 
 `(2) This paragraph has effect in relation to any award of partnership shares (within the meaning of Schedule 8 to the Finance Act 2000) in relation to which the eligibility time falls after the passing of this Act. 
 (3) For this purpose ``the eligibility time'' means the time at which an individual, in order to participate in the award, is required, in accordance with paragraph 13(1)(b) of that Schedule, to be eligible to so participate.'.—[Mr. Timms.]
 Amendment, as amended, agreed to.

Howard Flight: I beg to move amendment No. 15, in page 146, line 2, at end insert—
`Accumulation periods for partnership share awards
 (1) In paragraph 41 there shall be added— 
 ``(5) It shall not cause an award of partnership shares to cease to satisfy the requirements of this Schedule if where the completion of a qualifying period (within the meaning of paragraph 14) falls after the commencement of the accumulation period, an employee is made an award of partnership shares on the same terms as would have applied at the start of the accumulation period save for a rateable reduction in the number of partnership shares available to him to reflect the proportion of the accumulation period which has expired by the completion of his qualifying period.
 (6) It shall not cause an award of partnership shares to cease to satisfy the requirements of this Schedule if—
(a) prior to the commencement of the accumulation period an employee indicates that he would be willing to participate in that award during that accumulation period, but not from its commencement; and
(b) during that accumulation period an employee enters into a partnership share agreement on the terms which would have applied from the commencement of the accumulation period save for a rateable reduction in the number of partnership shares available to him to reflect the proportion of the accumulation period which has expired by the date of entry into the agreement.''.'.
 Mr. Allen: On a point of order, Mr. O'Hara. After that exhausting piece of footwork by the Chair, it may be an appropriate moment to say that the usual channels, at great expense, have reversed the decision of the Refreshment Department, and that the chuck wagon is now very close to the Committee Room. While retaining a quorum in Committee, Committee members may want to avail themselves of refreshments—which will, I understand, be available for a period of no longer than 10 minutes.

Edward O'Hara: I am grateful to the hon. Gentleman for what may not have been a point of order but was a most helpful intervention.

Howard Flight: Thank you, Mr O'Hara, for accommodating the starred amendment to amendment No. 14. Amendment No. 15 picks up another part of the employee share ownership rules in the schedule that we feel could be improved, and reflects practical experience.
 At present, awards of partnership shares can be made to employees under which they can purchase shares at market value from their pre-tax salary. That is usually done by means of what is known as an accumulation period, during which monthly deductions from payroll are contributed during 12 months into a fund that accumulates to buy the shares. We suggest a little more flexibility about such accumulation periods. It is possible to exclude anyone who has not served a minimum service period, but if that period is completed after the start of the accumulation period, such employees will be excluded from the award until the next year. 
 Equally, employees who are eligible at the start must make an immediate decision about whether or not to join. They cannot change their minds part way through—for example, once they are more certain about their financial position and ability to subscribe. However, people who sign up at the start can change their minds and reduce their contributions during the accumulation period. The net result of that is a little unfair, and causes practical difficulties. Would not it be simpler—as the amendment would allow—to let such people catch up during the year and offer them fewer shares to reflect the proportion of the accumulation period for which they participated?

Stephen Timms: The issue here is achieving the right balance between flexibility for employees with the administrative burden for employers.
 The Chairman's attention having been called to the fact that ten Members were not present, he suspended the proceedings; and other Members having come into the room and ten Members being present, the proceedings were resumed.

Stephen Timms: The current rules allow employers to set a qualifying period for participation in the all-employee share ownership plan of up to 18 months. That allows employers to exclude certain employees from the plan—for example, those on short-term contracts. However, the employer is free to choose whether to introduce a qualifying period. For the purposes of saving for partnership shares, the employer can choose whether to introduce an accumulation period—the period over which employees save to buy shares. Where the company sets an accumulation period, it will be a fixed period, which applies to all employees. The accumulation period could be the financial year from 1 April to 31 March, or could be much shorter if the company wished. An employee cannot start to accumulate funds to buy shares until they have served any qualifying period set by their employer, and must always start at the beginning of the accumulation period. However, the employee needs to have served a qualifying period of only six months to buy shares through an accumulation period, in recognition that accumulation periods may be as long as 12 months.
 The all-employee share ownership plan was designed with maximum flexibility for employers who choose to offer a plan to their employees. It is for the employers to decide what elements they wish to put into plans to reward their employees. Proposed new sub-paragraph 5 would remove some of that flexibility for employers. In addition, the amendment would probably not achieve its intended effect if an employee is to participate in an award of partnership shares. In that case, the employee must be eligible as defined in paragraph 13 of schedule 8 to the Finance Act 2000. Under the amendment, the employee will not be eligible at the start of the accumulation period. 
 Proposed new sub-paragraph 6 is intended to allow employees to signal the intention to join the accumulation period at some time other than at the start. The current rules governing the all-employee share plan already allow some flexibility. Employees may start or stop paying into the plan at any time, and can choose the dates on which to exercise the choice. All they have to do is tell their employer. On that basis, the amendment is unnecessary. However, the heart of the matter is getting the right balance between flexibility for employees versus the cost for the employer in administering the scheme. Last year's Act set the balance at about the right place.

Tony Banks: Share ownership plans are an excellent incentive for employees. Companies that operate such schemes tend to be more successful in a number of ways. However, share ownership schemes, by definition, can happen only within the private sector. How can the benefits be extended to the public sector? It seems unfortunate, and to some extent unfair, that those economic advantages are not available within the public sector.

Stephen Timms: My hon. Friend is right. There is growing evidence of the beneficial impact of such schemes on the performance of private firms that take advantage of them. He will be pleased to note that we listened carefully to representations from the co-ops in the run-up to last year's Finance Act and so have accommodated co-operative organisations as potential beneficiaries from the plans. He is also right that by definition there is no concept analogous to profit or share value in the public sector, and so the benefits are not available to public sector employees. I have had representations from time to time that we should work up something that would be analogous. I have not yet seen anything that looks as though it may do the job. However, if my hon. Friend, or others, had ideas that we should look at, of course we would be happy to do so.

Howard Flight: The easiest answer to the question is self-evidently privatisation or PFI-isation of the public service. On the basis of the Minister's response, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Question proposed, That this schedule, as amended, be the Thirteenth schedule to the Bill.

Howard Flight: Hon. Members will be aware that amendment No. 16 has not been selected because, as has been said correctly, it deals with a national insurance issue, whereas schedule 13 is concerned with tax. However, the Government should consider the issue of certainty of national insurance costs, which they have already addressed in relation to unapproved option schemes. At present, an employer's national insurance is charged on all employee share ownership plan shares in two ways. If an income tax charge occurs during years one to three, it is levied on the market value of the shares at the time; during years four to five, it is levied on the original market value of the shares. That can lead to unpredictable cost exposure for employees, which is analogous to the problem that arose with unapproved options.
 As the Government have accepted that unpredictable national insurance exposure is a problem and as they duly acted in unapproved option schemes, would it not be sensible to give employers certainty in national insurance cost for share ownership schemes? The Committee should also note that the charging of national insurance is an anomaly and that there is no national insurance exposure on other forms of the plan.

Stephen Timms: I will respond directly to the hon. Gentleman's point, which was referred to in the unselected amendment. The all employee share ownership plan is not an option plan; it provides tax incentives to employees and employers when employees take a stake in the company for which they work. They have an interest in the shares from the time that they are awarded, and tax benefits apply if an employee holds those shares for five years. If the shares are taken from the plan within five years and there is an income tax charge, there will be a national insurance liability, because the two charges are aligned.
 As the hon. Gentleman mentioned, we have made an exception for share options to give special help for the high-growth sector where options rather than share awards often form an integral and substantial part of remuneration packages. In such cases, the timing and amount of the national insurance liability is uncertain and companies can experience problems with investment strategies and growth plans. However, there is no prospect that national insurance liabilities in the all employee share ownership plan will have the same consequences. We do not want employers to pass national insurance liabilities in the plan to employees in this case, because that would act to discourage employees from taking part. The scale is different, and it would not be appropriate to make a change in the schedule analogous to the one that we made with share options. 
 Question put and agreed to. 
 Schedule 13, as amended, agreed to.

Clause 93 - Exemptions in relation to employee share ownership plans

Howard Flight: The clause provides an exemption from stamp duty and stamp duty reserve tax when employees buy partnership or dividend shares from an ownership trust. Why has it been included in the Bill? I understood that it was accepted practice that stamp duty, or stamp duty reserve tax, did not apply in those circumstances. Will the clause make the situation clear, or are there underlying disputes?

Stephen Timms: I am not aware of any disputes; we merely want to ensure that there is no double stamp duty charge. The clause makes it clear that there is no such charge, so it makes a helpful change.
 Question put and agreed to. 
 Clause 93 ordered to stand part of the Bill. 
 Clause 62 ordered to stand part of the Bill.

Schedule 14 - Enterprise management incentives: amendments

Howard Flight: I beg to move amendment No. 17, in page 147, line 37 at end insert—
`Indexation of amounts
 .—(1) If the retail price index for the month of September preceding a year of assessment is higher than it was for the previous September, then, unless Parliament otherwise determines, paragraph 10(1)(a), paragraph 11(1) and paragraph 16(1) shall apply for that year as if each amount specified in them as they applied for the previous year (whether by virtue of this paragraph or otherwise) there were substituted an amount arrived at by increasing the amount for the previous year by the same percentage as the percentage increase in the retail price index, and 
jf13Ý(a) if in the case of an amount specified in paragraph 10(1)(a) and paragraph 11(1) the result is not a multiple of £10,000, rounding it up to the nearest amount which is such a multiple;
(b) if in the case of the amount specified in paragraph 16(1) the result is not a multiple of £100,000, rounding it up to the nearest amount which is such a multiple.
 (2) The Treasury shall in each year of assessment make an order specifying the amounts which by virtue of sub-paragraph (1) above will be treated as specified for the following year of assessment in paragraphs 10(1)(a), 11(1) and 16(1).'.

Edward O'Hara: With this we may take the following amendments: No. 23, in schedule 15, page 152, line 22, at end insert—
`Indexation of amounts
 .—(1) If the retail prices index for the month of September preceding a year of assessment is higher than it was for the previous September, then, unless Parliament otherwise determines, section 290, subsection (6A) of section 293 and subsection (2)(a) of section 301A shall apply for that year as if each amount specified in them as they applied for the previous year (whether by virtue of this paragraph or otherwise) there were substituted an amount arrived at by increasing the amount for the previous year by the same percentage as the percentage increase in the retail prices index, and— 
jf13Ý(a) if in the case of an amount specified in subsection (1) of section 290 the result is not a multiple of £10, rounding it up to the nearest amount which is such a multiple;
(b) if in the case of an amount specified in subsection (2)(a) of section 301A the result is not a multiple of £100, rounding it up to the nearest amount which is such a multiple;
(c) if in the case of the amount specified in subsection (2) of section 290 the result is not a multiple of £10,000, rounding it up to the nearest amount which is such a multiple;
(d) if in the case of the amounts specified in subsection (6A) of section 293 the result is not a multiple of £100,000, rounding it up to the nearest amount which is such a multiple.
 (2) The Treasury shall in each year of assessment make an order specifying the amounts which by virture of sub-paragraph (1) above will be treated as specified for the following year of assessment in section 290 and subsection (6A) of section 293.'.
 No. 29, in schedule 16, page 170, line 11, at end insert— 
`Indexation of amounts 
 .—(1) If the retail prices index for the month of September preceding a year of assessment is higher than it was for the previous September, then, unless Parliament otherwise determines, paragraph 22 (gross assets requirement) shall apply for that year as if each amount specified in that paragraph as they applied for the previous year (whether by virtue of this paragraph or otherwise) there were substituted an amount arrived at by increasing the amount for the previous year by the same percentage as the percentage increase in the retail prices index, and if the result is not a multiple of £100,000 rounding it up to the nearest amount which is such a multiple. 
jf6Ý (2) The Treasury shall in each year of assessment make an order specifying the amounts which by virtue of sub-paragraph (1) above will be treated as specified for the following year of assessment in paragraph 22.'.

Howard Flight: Amendments Nos. 23 and 29 make the same point as amendment No. 17, which relates to enterprise management incentives. In all three areas, the maximum prescribed limits are already modest, and in the case of EMIs and enterprise investment schemes, they have lost in real value by a year's modest inflation. The extension of the scope for EMIs is greatly welcomed; it is mainly dealt with in schedule 14, but that does not address the low personal limit or the low corporate value limit. Over time, unless the limits are specifically increased, the amounts become worth less and less in real terms. The amendment is designed in essence to index the limit; it is based on section 257C of the Income and Corporation Taxes Act 1988, which allows the indexation of personal tax allowances with rounding up to the nearest £100; the suggested figures of £10,000 and £100,000 are equivalent roundings, given the size of the original personal EMI limit and the original corporate value limit.
 Amendment No. 23 prescribes similar proposals for enterprise investment schemes and the suggested figures are equivalent roundings, given the size of the original amounts. Likewise, in amendment No. 29 the suggested figures are equivalent roundings given the original size proposed in the Bill for corporate ventures.

Stephen Timms: It might be helpful to point out that the amendment reminds us of the value of the low inflation that we are currently enjoying. Inflation has been at historically low levels for several years.
 There is value in having easily remembered round numbers rather than numbers that are slightly changed each year in line with inflation. There are several examples of measures introduced by the previous Government in which indexation was not provided for. I would not agree that indexation should automatically be applied whenever any measure of this kind is introduced. For example, the minimum amount directly invested by an individual in a company in a tax year that can qualify, under the enterprise investment scheme, for income tax relief is £500. If amendment No. 23 were accepted, if the retail price index were 2 per cent. higher than it was last September, that sum would rise to £510 next year, which would not constitute a significant gain for anybody. 
 There are some minor drafting errors, on which I shall not dwell. There is confusion about what should be done with the £1,000 de minimis amount that applies where, under the corporate venturing scheme or the enterprise incentive scheme, an investor receives value back from the company in which he or she invests. Amendment No. 23 proposes that the sum should be uprated for enterprise incentive scheme income tax relief but does not include a Treasury order to achieve that. None of the amendments deals with the corresponding de minimis provisions for enterprise incentive scheme deferral relief and the corporate venturing scheme. The amendments deal with asset size tests for the enterprise incentive scheme, the corporate venturing scheme and the enterprise management incentive scheme, but leave untouched the corresponding test for the venture capital trust legislation, which needs to keep in step with those for the enterprise incentive scheme and the corporate venturing scheme. Even if the principle were one that we should accept—which I do not think it is—several loose ends would need to be addressed. 
 We keep all the figures under review and will continue to do so; if at any time we are persuaded that there is a case for changing them, we will do so. That happened in 1998, for example, when we relaxed the gross assets test used for the enterprise incentive scheme and for venture capital trusts; the upper and lower figures were both raised by £5 million, which preserved a difference of £1 million between the amounts while increasing the lower amount by 50 per cent. That is a good example of an inappropriate indexed rise. For the reasons that I have set out, I ask the Committee not to introduce automatic indexation.

Howard Flight: I take the point about the untidiness of indexation. I should like to put words into the Minister's mouth and ask him whether the Government intend that, over time and by one-off rounded increases, the real values relevant to the enterprise management scheme, the enterprise incentive scheme and, as he points out, venture capital trusts and corporate venturing, should at least be kept up over time.

Stephen Timms: The hon. Gentleman says that he would like to put words into my mouth. I cannot own the words that he proposed. All that I can say is that we will keep those matters continuously under review in regard to the enterprise investment scheme, the corporate venturing scheme and the enterprise management incentives. When there is need for a change, we will not hesitate to make it.

Howard Flight: In the light of that answer, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Howard Flight: I beg to move amendment No. 18, in page 147, line 37, at end insert—
`The gross assets requirement
 In paragraph 16 (the gross assets requirement), in sub-paragraph (1) and (2) in each case for ``£15 million'' substitute ''£20 million''.'. 
jf4ÝÌThe ChairmanÌ: With this it will be convenient to take the following amendments: No. 22, in schedule 15, page 152, line 11, at end insert—
 (3) In subsection (6A) of section 293 (value of relevant assets), in paragraph (a) for ``£15 million'' substitute ``£20 million'', and in paragraph (b) for ``£16 million'' substitute ``£25 million''.'.
 No. 28, in schedule 16, page 170, line 11, at end insert— 
`The gross assets requirement 
 In sub-paragraph (1)(a) and sub-paragraph (2)(a) of paragraph 22 (gross assets requirement), for each reference to ``£15 million'' substitute ``£20 million'', and in sub-paragraph (1)(b) and sub-paragraph (2)(b) of that paragraph for each reference to ``£16 million'' substitute ``£25 million''.'. 
jf4ÝÌMr. FlightÌ: Amendment No. 22 raises a parallel issue in relation to EIS investment, and amendment No. 28 in relation to venture capital investment. All three amendments make the point that the gross assets requirement is, at £15 million, particularly modest. We debated that issue at some length in last year's Finance Bill. Enterprise management incentive schemes cost around £10,000 to set up. One reason for their disappointing take-up has been that they are simply not commercially viable for small businesses. It would therefore make sense to increase that limit from £15 million to £20 million to provide a more vital dynamic for the smaller new end of the economy. Given that, sensibly, an attempt is made to synthesise some of the provisions relating to EIS and CVS, we similarly propose an increase to £20 million in relation to EIS qualification and corporate venturing.

Stephen Timms: The aim of the targeting rule is to restrict the enterprise management incentives, the enterprise investment scheme and the corporate venturing scheme to small companies. The amendments to EIS and CVS are for an increase in the gross assets requirement from the present £15 million before the investment and £16 million after it, to £20 and £25 million respectively. Those schemes aim to encourage equity investment in small companies. They are targeted in that way because smaller companies experience the greatest difficulty in raising start-up finance and funds for growth and development.
 Extending the size of companies that can qualify would divert funds away from the small higher risk companies that the schemes are intended to support, thereby undermining the effectiveness of the schemes and potentially significantly increasing the cost to the Exchequer. Similarly the proposal for a 33 per cent. increase in the limit for enterprise management incentives would undermine the policy of EMI, which is to focus on helping smaller companies recruit and retain the key employees whom they need to make them grow. 
 We keep those requirements under review. The growth asset requirement at its current level was introduced as recently as 1998 for EIS, and just last year for corporate venturing and management incentives. It would be too soon to consider such a big increase in the requirements for these schemes given that they are aimed at small companies. I do not agree with the hon. Gentleman's comment about low levels of take-up. The level of take-up has been very encouraging in all cases. Taken together, the amendments would significantly increase costs. They would undermine the carefully designed aim of the schemes and create an unwelcome disparity with the legislation for venture capital trusts, which uses the same test. I hope that the hon. Gentleman will not press the amendments.

Howard Flight: The intent is that the same rule should apply as appropriate across the whole venture capital patch. There is not only the issue of the original real value having been eroded by inflation, relating back to our last debate, but that a study of the venture capital and the new business sectors reveals that there is little logic in having a line drawn at £15 million. It will depend upon the nature of the business how much capital is required, and so on. It would be in the economic interest to bring a slightly wider range of companies within the bailiwick of these tax incentives.
 I will not press the amendment to a vote. We have raised the points before and the Government do not want to give way. I hope, in view of the Minister's previous comments, that he is also willing to say that the sizes are limits that the Government will keep under review.

Stephen Timms: We do, of course, keep all these matters closely under review.

Howard Flight: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Howard Flight: I beg to move amendment No. 19, in page 147, line 37, at end insert—
`Excluded trades
 (1) For paragraph 19 substitute— 
jf15Ý``19. The following are excluded activities—
(a) advertising and publicising the policies of Her Majesty's Government;
(b) the conduct of surveys or polls as to the opinions of members of the public (or any section of them) on any subject (whether by interview in person or by telephone or through the medium of a group discussion focused upon any particular subject);
(c) estate agency;
(d) consultancy as to the arrangement of objects or artefacts within any living space (where based upon the principles of any non-European philosophy);
(e) fashion modelling (the provision of individuals engaged wholly or mainly for the purpose of displaying, whether or not to the public, items of clothing); and
(f) the publication of newspapers (including magazines or other periodicals, but not journals of a technical or scientific nature).''.
 (2) Leave out sub-paragraph (2) of paragraph 19 and paragraphs 20 to 26 inclusive.'.

Edward O'Hara: With this we may take the following amendments:
 No. 21, in schedule 15, page 152, line 28, at end insert— 
`Qualifying trades 
 .—(1) In subsection (2) of section 297 (qualifying trades), following ``a substantial part of the trade'' substitute: 
jf13Ý``(a) advertising and publicising the policies of Her Majesty's Government; 
 (b) the conduct of surveys or polls as to the opinions of members of the public (or any section of them) on any subject (whether by interview in person or by telephone or through the medium of a group discussion focused upon any particular subject); 
 (c) estate agency; 
 (d) consultancy as to the arrangement of objects or artefacts within any living space (where based upon the principles of any non-European philosophy); 
 (e) fashion modelling (the provision of individuals engaged wholly or mainly for the purpose of displaying, whether or not to the public, items of clothing); and 
 (f) the publication of newspapers (including magazines or other periodicals, but not journals of a technical or scientific nature).''.
 (2) Leave out subsections (3) to (9) inclusive of section 297 and subsections (5) to (5C) inclusive of section 298.'.
 No. 27, in schedule 16, page 170, line 11, at end insert— 
`Excluded activities 
 (1) In sub-paragraph (1) of paragraph 26 (excluded activities), following ``excluded activities'' substitute: 
jf13Ý``(a) advertising and publicising the policies of Her Majesty's Government; 
 (b) the conduct of surveys or polls as to the opinions of members of the public (or any section of them) on any subject (whether by interview in person or by telephone or through the medium of a group discussion focused upon any particular subject); 
 (c) estate agency; 
 (d) consultancy as to the arrangement of objects or artefacts within any living space (where based upon the principles of any non-European philosophy); 
 (e) fashion modelling (the provision of individuals engaged wholly or mainly for the purpose of displaying, whether or not to the public, items of clothing); and 
 (f) the publication of newspapers (including magazines or other periodicals, but not journals of a technical or scientific nature).''.
 (2) Leave out sub-paragraph (2) of paragraph 26 and paragraphs 27 to 33 inclusive.'.

Howard Flight: The amendments relate to three different sectors and cover territory debated in last year's Finance Bill. The list of qualifying activities is a hangover from the old days of business expansion schemes. Even at that time, it was a mistaken reaction to a belief that the BES was being abused in the property arena; in reality, the property sector was about to collapse and many people failed to make money through property BESs.
 There is a list of qualifying or excluded activities, which has a strange historic moral purpose behind it. The amendments would substitute a new list of excluded activities. In today's age, some might view it as equally not worth having morally or in terms of economic interests. I present the argument in this fashion intentionally to make the point that specifying excluded territory on moral grounds is subject to fashion and revised judgment and also fails to make commercial sense. These are probing amendments whose objective is to get rid of the list of excluded activities.

Melanie Johnson: The reason for excluding certain trade activities is to target the schemes on companies in the greatest need and to ensure value for money. I am sure that the hon. Gentleman realises that. They are not excluded, as the Opposition used to suggest, on moral grounds, but because they are generally less risky and because the investor's stake is effectively underwritten by property owned by the company. I was sad to discover that the millennium dome was left off the Opposition list, but we can discern a new bandwagon on their list this year.
 A relevant factor for the Government is the extent to which the essentially artificial trades involved in these activities could be set up for the purposes of obtaining relief without exposure to an appropriate level of risk. The reliefs in the schemes are very generous and it is right to target them at companies carrying out riskier forms of enterprise. That applies to all these provisions.

Howard Flight: Does the Minister accept that one of the excluded activities, agriculture, now faces the highest risk and is more in need of capital economic activity than any sector in the country?

Melanie Johnson: I will deal with that immediately, if the hon. Gentleman would like. Farming is one of the excluded activities from the list that is kept under review. The list was most recently extended in the Finance Act 1998 to exclude some additional activities, including farming. It was partly a response to the concern of the farming industry itself—referred to in the hon. Gentleman's opening remarks—that the tax-driven acquisition of farm land was making it more difficult for existing farmers to expand.
 We have recently been asked whether now is an appropriate time to readmit farming as a qualifying trade. Of course, we have every sympathy with businesses affected by the foot and mouth epidemic, but all the schemes that are the subject of the amendments apply only to companies, and our figures suggest that fewer than 5 per cent. of livestock farms—I emphasise that that is livestock, not arable—are incorporated, so only 5 per cent. could potentially qualify. Even then it is unlikely that such farms would attract the interest of unconnected outside investors. The measures would not address the immediate liquidity problems of most of the farms suffering from foot and mouth disease. 
 Moreover, allowing farming to qualify for EIS deferral relief would principally benefit so-called hobby farmers rather than those whose livelihood depends on farming. I am sure that the hon. Gentleman would not want us to do that, because it would divert investment away from genuine higher-risk trading activities. Those who wish to invest in rural industries, rather than farming and market gardening, can do so under the existing rules. The rules would not prevent such companies from being based on existing farms. 
 It is not clear from the drafting, but it seems that the intended effect of the amendments is to substitute the existing list of excluded activities, which was largely drawn up by the previous Conservative Government, with an entirely new list. The similar amendments tabled by the Opposition last year included the corporate venturing scheme and the enterprise management initiatives. The wider point that the Opposition may want to make is that there is no case for excluding any activities from the scheme. I do not agree, if that is the force of their two rather different-ranging sets of lists from the past two years. For example, it is clear that those who advise potential EIS investors consider that property-backed activities carry a lower level of risk. That is not surprising. Publications that provide an assessment of investor risk for EIS share issues give significant weight to that factor. If the more common property-backed activities were not excluded, experience gained from the EIS predecessor shows that most EIS investment would be channelled into such companies, denying to other forms of company the opportunity to raise the funding. 
 If the list were abandoned, that would also encourage those who want the benefits on offer but do not want to act in accordance with the aims and spirit of the schemes. There is no reason why those who abuse the business expansion scheme by, for example, setting up essentially artificial retail trades, in antiques or paintings, or by interposing artificial distribution companies between genuine wholesale and retail companies, would not act the same way in relation to EIS if they were free to do so. We would end up with the same range of abuses that existed under the business expansion scheme. 
 I hope that I have given Committee members ample reason not to pursue the amendments.

Howard Flight: First, may I make a distinction between abuse and measures that may be needed to prevent avoidance, and the concept of economic activities that are either more deserving than others or are deemed to be of higher or lower risk? I made the point that the list was born of the BES days and indeed of the previous Conservative Administration. Economic history shows that it was ill conceived at the time. There were comments that BES was being used too much for property investment, and the property market collapsed shortly after. Many people lost a lot of money and learned from their experience. The probing amendment was first tabled to deal specifically with agriculture. While 95 per cent. of farms are not owned individually, there is no great difficulty in people using a corporate vehicle if they wish, and being able to use one of the schemes as a source of badly needed capital. I ask the Government to think further about agriculture.
 Secondly, the list is out of date. It reflects moral judgments on the economy made 15 years ago and is well overdue for revision in terms of what areas need capital. As I have said, the amendment is probing. The Minister replied to the effect that agriculture has been examined, but I still believe that that is unsatisfactory.

Melanie Johnson: This list is not about morally excluded activities, but levels of risk and whom we want to incentivise. There is no point trying to incentivise low risk activities because, by their nature, they are already incentivised. We keep risk under review and I thank the hon. Gentleman for drawing the Committee's attention to the losses sustained by investors under the previous Conservative Government.

Howard Flight: I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Howard Flight: I beg to move amendment No. 20, in page 150, line 4, leave out from `option),' to end of line 6 and insert—
`for paragraph (b) substitute—
``(b) at the time of the release of rights under the old option, the requirements of paragraph 9 (purpose of granting the option) are met in relation to the new option;''.'.
 I trust that the Government will accept the amendment, because the Bill is defective. As it stands, it will be possible to exchange a new EMI option for an old one only if the total value of the new options does not exceed £3 million. That will mean that, if a company uses up its full EMI capacity and is then taken over at a premium, it will not be able to roll over the options into the acquiring company. The remaining provisions of paragraph 63 of the EMI rules are inadequate to protect the position of the new option. Paragraph (b)(ii) is irrelevant once the limit of 15 participants is removed. The Government might know that that defect has been noted by the Chartered Institute of Accountants, and we want the Government to address it.

Melanie Johnson: As the hon. Gentleman said, the amendment would remove the requirement that, in a company reorganisation, the maximum value of options in respect of the acquiring company does not exceed £3 million at the date of the grant. Removal of that requirement would allow one company or group to breach the generous £3 million limit as a result of the merging of several companies with EMI options. There is the potential to have an unlimited number of shares under the EMI option.

Oliver Letwin: I apologise for referring to the previous debate, but one of the Minister's comments has been reverberating around my mind and it is relevant. Is she claiming that, because capital markets in Britain are incapable of allocating risk to reward and vice versa, the Government intend, with EMI and other such schemes, to direct investment more heavily than the capital markets would otherwise do towards riskier ventures?

Melanie Johnson: Our view is that there are enterprises involving greater risk that need investment and that we must encourage engagement with those companies, be it by staff investment support or through the markets and outside investment. As such, the schemes are focused on the riskier end. I am not saying anything new in that—that was the thrust of our comments in last year's Finance Bill Committee. Opposition amendments, which would extend the scope to slightly less risky parts, would not target such enterprises in the intended way. They would also draw investors' interest to the less risky end of the spectrum. That is why we do not support the general drift of the amendments. I hope that that clarifies the point for the hon. Gentleman.

Oliver Letwin: As this threatens to be the only interesting point that we have managed to discuss this morning, I am tempted to pursue it one stage further. That is no reflection on either my hon. Friends or Ministers; this is just a boring part of the Bill—[Interruption.]—like most other parts of the Bill. Does the Economic Secretary seriously maintain that the current risk to reward ratio offered in the United Kingdom capital markets is, in the Government's view, systematically distorted? That would be the only rationale for her observations.

Melanie Johnson: No, it would not. The rationale is the one that I have already set out. EMI offers generous targeted tax reliefs to help companies recruit and retain the staff that they need to help them to grow. As I told the hon. Gentleman, we must ensure that the scheme is focused on only smaller, higher-risk companies. Without targeting rules, the market would respond by devising schemes to extract tax reliefs without risk, because one attraction of the market is to try to find good returns with low risks. I am sure that I do not need to explain that to the hon. Gentleman.
 The changes in this year's Finance Bill will make the EMI even more generous and not only remove the limit on the number of employees who can be granted the EMI option, but double the value of the shares that can be granted under EMI. Those changes were warmly welcomed during the consultation period. As I said, the amendment, which would remove any financial limit in the case of company reorganisations, would undermine the objective of the tax-relieved incentives. Although the hon. Gentleman was hopeful that we would accept the amendment, I urge the Committee to reject it.

Michael Jack: The Economic Secretary mentioned the figure of £3 million. Why does the Treasury think that £3 million is the right figure? On what basis was that calculated?

Melanie Johnson: We considered that. We believe that that is the right figure and targets the right range of companies. Indeed, we believe that that will lead to the right outcome in terms of risk. We welcome the support of the Institute of Directors on the matter, which said:
 ``We welcome the increase in the limit on the value of shares under option to £3m, the removal of the limit on the number of participating employees and the removal of the ``key'' employees requirement.'' 
The limit represents a 100 per cent. increase, which no one can dispute is significant, and gives much greater scope for employees to benefit from the growth of their company.

Michael Jack: The Economic Secretary seems to be telling me that it is right because it is right. Any increase is bound to be welcomed. I return her to my question: how was the £3 million figure calculated? What was the basis of deciding that £3 million was right?

Melanie Johnson: We looked to see what the take-ups were like and what value was likely to target the companies that we wanted to target. The figure is generous. The Institute of Directors, which does not lightly praise the Government or routinely welcome Government initiatives but is careful with its praise and judgments—as I am sure that the right hon. Gentleman is aware—has welcomed the increase and considers the sum a reasonable one to pick. Of course, we consulted widely on the matter, and as a result of that we arrived at the figure of £3 million.

Andrew Tyrie: If we consult firms and ask them whether they would like a relief, they are likely to say, ``Yes, please.'' The choice is between selective targeted relief and slightly lower rates across the board. Such choices must always be made with a tax system. In this case, the Government have gone for selective targeting, so the issue is whether they identified a need for it.
 The Economic Secretary said a moment ago—I hope that I am almost quoting her—that some areas were not receiving the investment that they needed. That means that the Government must have their own assessment of need or the right level of investment; that assessment must differ from that of the capital markets; and some distortion in those markets must be creating the inadequate level of investment and therefore the need. 
 Has the Economic Secretary estimated that need and market distortion? Has such an estimate been published and I have missed it? If not, will she put it in the public domain? Is the situation getting worse or better? I think that she is really saying that the Government should, to some degree, be in the business of picking winners in one part of the capital markets. That is a risky road to go down. Before I conclude that that is what she is saying, will she answer my questions?

Oliver Letwin: I do not want to extend the debate unduly, but I want to expose the fallacy of what the Economic Secretary has said, and I hope that she will revise her remarks as a result. From the inception of the schemes, their purpose has not been to try to overcome a misalignment of risk and reward in the capital markets or the economy as a whole, although my hon. Friend the Member for Chichester (Mr. Tyrie) is right that it would have been rational to do so had there been a problem. Nor has the Chancellor ever suggested that there was such a problem. The schemes' purpose is to change the position on the graph of the indifference curve of investors.
 Investors make judgments about risk and reward at any given combination of those two phenomena. The aim of the schemes is to make investors as a whole less risk averse by improving return, which moves the whole indifference curve up the graph. That applies as much to highly risky and hence highly rewarding enterprises as to highly unrisky and therefore unrewarding ones. It has no relationship to the point on the curve on which any given enterprise may fall. I do not know whether, on the assumption that investors in the UK are collectively too risk averse, it is sensible to induce investors to move upwards on the indifference curve. I plead agnosticism, but that is the purpose of the schemes. 
 The Economic Secretary's justification for rejecting my hon. Friend's points is therefore against the spirit of the schemes. I hope that she will see fit to revise her remarks, because I think that they mislead the Committee about the Government's purposes, let alone a rational purpose.

Melanie Johnson: I will in no way gainsay what I have said. I strongly believe that the hon. Gentleman's remarks on changing the risk-averse nature of some investors support my points. That is one issue that we address in the schemes. I am curious about why the Conservatives are so interested in the topic, because they had the EIS scheme and introduced the VCT scheme.
 I was originally dealing with the argument advanced by the hon. Member for Arundel and South Downs, who suggested that a moral element was involved. I shall not go back over the previous set of amendments, Mr. O'Hara, because you will rule me out of order, but we are not talking about a moral stamp of approval—quite the reverse. I gave the relevant reasons earlier. 
 All that needs to be said about enterprise management incentives is that the scheme was based on consultation and developed in detail by an advisory group including representatives from the companies most likely to benefit and from practitioners. The outcome was devised keeping in mind those whom we wanted to benefit from the scheme, the detail of which is entirely appropriate.

Andrew Tyrie: Does the Economic Secretary agree that a scheme created and devised by the interest group most likely to benefit may not result in a scheme that is most likely to benefit the economy?

Melanie Johnson: The point is that it is a targeted measure, as are the other schemes we have been discussing this morning. The economy benefits if proposals are targeted; performance is improved and so is access to investment in the relevant part of the economy. The Opposition seem to be suggesting a scattergun approach, in which they distribute tax largesse—which they do not have anyway—without targeting. That is not within the spirit of the measure, which I hope that the hon. Gentleman now realises.

Howard Flight: We welcome the increase to £3 million and the other reforms in schedule 14, most of which we suggested in the debate on the EMI schemes last year. If a company in which a person has EMI options is taken over, and he cannot continue them, he will lose unless amendment No. 20 is accepted. One solution is that the maximum value of options in respect of the relevant company's shares should be recorded at the time of the original grant and not at the time of the release of rights under the old options. However, if nothing is done about it, a person will be unfairly treated if his little business is taken over and it is not of his doing. The amendment applies to takeovers, not to applications further to increase the £3 million limit.
 Amendment negatived. 
 Schedule 14 agreed to. 
Motion made and Question proposed, That further consideration be now adjourned.—[Mr. Allen.]

Michael Jack: On a point of order, Mr. O'Hara. Am I correct in assuming that the motion proposed by the Government is debatable?

Edward O'Hara: It is debatable.

Michael Jack: I hope that I might catch your eye and discuss it. I am surprised that the Government Whip has decided to propose the motion at this juncture, as it is only 31 minutes to one o'clock, when our proceedings are supposed to conclude. It is disappointing that the Government have seen fit not to inform us. It raises questions about their preparedness to advance before the Committee the subsequent clauses for the afternoon sitting. Perhaps it also suggests how the Opposition have assisted through their careful and proper probing of clauses and schedules, thereby creating an opportunity to make further progress.
 I express my disappointment that the Government Whip has seen fit to pull stumps now, when officials whose purpose is to advise Ministers are present, but unable to perform their function. It is a shame that the Government Whip has sought to end our discussions at this stage; I would have appreciated the chance to move on to further business.

Graham Allen: It is unusual for Government Whips to say anything in Committee. I was merely responding to the agreement made through the usual channels. I am sorry that certain hon. Members are obviously not privy to those discussions.

Edward O'Hara: The circumstances are simple. An Adjournment has been proposed and I shall put the Question to the Committee. Hon. Members who object should vote against it.
 Question put and agreed to. 
Adjourned accordingly at twenty-nine minutes to One o'clock till this day at half-past Four o'clock.